You won’t find too many HUD homes in Columbus that are available to investors. You need a good strategy to be successful when you compete for the limited number of HUD listings.
Last week one of my investors won a bid on a HUD home that was in fairly good condition, offered at a reasonable price, and did not get offers from other buyers. After submitting a few bids and some back-and-forth with HUD, my buyer won the bid at less than 80% of the list price.
A 20% discount is certainly not the best you can get.
The discount will depend on the original asking price and how that compares to the market values of similar homes in the area. Quite often we see HUD houses offered at a relatively low price, especially, if they are uninsured and cannot be purchased with regular FHA loans. So, you may not need a huge discount from the asking price to make it a good deal.
Here are 3 bidding strategies that will help you get your offers accepted quickly:
1. Make Cash Offers on Uninsured HUD Homes
Most HUD homes available to all bidders are uninsured. This means that they need more than $5,000 in work – or more than 35% of the purchase price. When it comes to cheap homes, 35% is not that much, and you may be able to buy a good quality house at a bargain price.
HUD can’t sell these homes with FHA loans. They know that only a few buyers will go through the hassle of applying for a 203k rehab loan. Therefore, cash offers are best. If you don’t have cash, work with a hard money or rehab lender that can give you a pre-approval letter and close quickly.
2. Respond to HUD’s Counter Offers
In many cases HUD will respond with a counter offer. We suggest that you submit a reasonable, but low offer first – say 65% of asking price. If there are no other bidders, HUD will counter with a number they will accept.
The counter offer HUD sends out is the NET amount they will accept, so you have to add the commissions to the net to get the total contract amount. The buyer’s agent may reduce their commission, if that is necessary to make a deal work.
You do not have to accept HUD’s counter offer. You can submit a lower bid. As these homes are on a daily bidding deadline, you can submit a new offer every day. If there are no other bidders, there’s a good chance HUD will accept a lower offer or continue to counter.
Once other bidders get into the game and offer more than HUD’s counter, you may be out of luck. All bidders get the same counter from HUD.
3. Be Patient and Ready
There are not too many HUD homes for investors. But great deals appear on the market every single month. There is no logic, why some homes are offered at a bargain price and others are overpriced. You just have to watch what’s happening on the HUD home store. An experienced Columbus real estate agent will gladly do it for you.
You have to be ready and pull the trigger when the right deal comes around. Over the past year we had almost new condos offered for less than half of their retail value, we saw a duplex in German Village sell for the price of one of the units, and we found rent ready HUD homes listed for only $11K.
Bonus Tip for HUD Investors
HUD is more likely to accept lower offers on homes that fell out of contract before. Sometimes the relisting of a HUD Home triggers a price reduction as well as a change from insured with escrow to uninsured.
These are the deals where you get the lowest offers accepted.
Always keep in mind that HUD is a motivated seller. They make mistakes occasionally that you can profit from. But they do not give their properties away just to get rid of them.